Customer value,

Satisfaction and loyalty

Conceptual Framework
Competitively Superior
Value Proposition (resulting experience)
(segment specific)

Value Delivery System

High Customer
High Customer Value
Satisfaction

(Experiential)

High Customer
loyalty

What is customer value?

Customer perceived benefit
Customer cost

Determinants of
Customer Perceived Value
Total customer benefit- Total customer cost

Product benefit

Monetary cost

Services benefit

Time cost

Personal benefit

Energy cost

Image benefit

Psychological cost

Models of Customer value

Value component model (Kano, 1984)
Utilitarian model (Growth, 1994)
Value- Hierarchy Model(Woodruff,
1997)

Value Component Model

-Focuses on product features/ product augmentation/ customer benefits.

-Little attention to interaction and relationship between customer and supplier
-Customer sacrifice side of value is largely ignored.

Customer Satisfaction
Disconfirmation between expectation
and perception
How to measure satisfaction: ESQI
index

Understand Satisfaction
Drivers Service
Quality

Emotional
Factor

Customer
Satisfaction
Price
Product
Quality
Access to
products &
Services

Mapping of customer value

http://www.cval.com/valuemap.htm

Customer Lifetime Value

In marketing, customer lifetime
value(CLV) is a prediction of the net
profit attributed to the entire future
relationship with a customer.

What are your customers worth?

Customer Lifetime Value = CLV

S = average revenue per

customer sale
C = costs of servicing
customer
V = expected # sales per
year
Y = expected # years
customer will use your
services
A = cost of acquiring new
customer
N = # of referrals from
customer
F = correction factor

Lifetime Value of
Customer (CLV)
=

[(S-C)*(V*Y)-A+
(A*N)]*F
OR

Margin * # sales cost of

acquisition + savings from
referrals * correction factor

What are your customers worth?

Customer Lifetime Value = CLV

S = average revenue per

customer per sale
C = costs of servicing
customer
V = expected # sales per
year
Y = expected # years
customer will use your
services
A = cost of acquiring new
customer
N = # of referrals from
customer
F = correction factor

S = $20,000
C = $5,000
V=2
Y=5
A = $1500
N=4
F = 1.2

CLV = [($20000-$5000)*(2*5)$1500+(1500*4)]*1.2

CLV = $185,400

http://customersthatstick.com/blog/customer-service-techniques/understa
nding-customer-lifetime-value-a-non-geek-guide

What is Loyalty?
Loyalty is a deeply held
commitment to re-buy or repatronize a preferred product or
service in the future, thereby causing
repetitive same-brand or same
brand-set purchasing, despite
situational influences and marketing
efforts having the potential to cause
switching behavior.
(Oliver, 1997)

Loyalty Phases
Source: Whence consumer loyalty? Richard L Oliver Journal of Marketing; 1999;
63, ABI/INFORM Global

Attitudinal Loyalty + intend to act

Obstacles to Loyalty

Consumer idiosyncrasies: Variety seeking, multibrand

loyalty, withdrawal from product category and change s in
need.

Switching incentives

The degrees of customer loyalty can be defined a follows:

Suspects: Includes all the buyers of the product/service category in the

marketplace. Suspects are either unaware of your product offering or have
no inclination to purchase it.

Prospects: Potential customers who have some attraction towards your

organisation but have not yet taken the step of doing business with you.

Customers: One-off purchasers of your product (although the segment

may include some repeat buyers) who have no real feelings of affinity
towards your organisation.

Clients: Repeat customers who have positive feelings of attachment

towards your organisation but whose support is passive rather than active,
apart from making
purchases.

Advocates: Clients who actively support your organisation by

recommending it to others.

Partners: The strongest form of customersupplier relationship which is

sustained because both parties see partnership as mutually beneficial.
It can be seen therefore that loyalty involves more than just making
a purchase or even repeat purchases. Loyalty represents a
positive level of commitment by the customer to the supplier and
it is the degree of positive commitment which distinguishes truly
loyal customers.

Promotional currency approach of loyalty

Customers (or Members) earn a promotional currency
(say, points or miles) based on some behavior.
Members redeem the currency at certain levels or
intervals for free and discounted goods and services.
As a rule of thumb, a promotional currency should be
worth $0.01 on the redemption side of the equation.
The use of tiers in a promotional currency program
may help stimulate behavior among members. There
may be two approaches. One is, tiers based on actual
spending and the other, tiers based on balance
approach as illustrated bellow:

Require redemption in fixed units:

Members should virtually always be required to redeem
their currency in
fixed increments. This guarantees that members will almost
always have a
balance remaining after redeeming and, therefore, will be
reluctant to defect because there is always something to
lose. Having this structure will ensure that all of the
promotional
currency in aCurrency
program canApproach
never be redeemed.
Why Promotional
is

appealing? (especially in airline industry)

High fixed/ low variable cost

structure and idle capacity
Extent of relationship

The Ultimate Question

How likely is it that you would
recommend our company to a
friend or a colleague?
Measure in 0-10 scale.

Scoring the Answer

One segment of the customers will give you a rating of 9-10.
We call them Promoters. They are the highest in terms of
repurchase and account for more than 80% of the referrals.
One segment of the customers will give you a rating of 7-8.
We call them Passively Satisfied. This groups repurchase
and referral rates are a lot lower than those of Promoters,
often by 50% or more. Motivated more by inertia than loyalty
or enthusiasm, these customers may not defectuntil
somebody offers them a better deal.
One segment of the customers will give you a rating of 0-6.
We call them Detractors. This group accounts for more
than 80% of negative WOM. Some of the customers may
appear profitable from accounting standpoint, but their
criticism and attitude diminish a companys reputation,
discourage customers and demotivate employees.

Net Promoter Score

NPS = % of Promoters - % of Detractors

Customer First

: Branded Experience

Promoters
Reduce
Reduce the
the Detractors:
Detractors:
Fix
Fix the
the broken
broken parts
parts
Call
Call downs
downs

Detractors

Promoters
Create
Create more
more Promoters
Promoters
Deliver
Deliver aa differentiated
differentiated and
and
consistent
consistent brand
brand experience
experience

Detractors

NPS Driving advocacy in the

enterprise

24

What is the norm out there?

The average Net Promoter Score
across over 400 companies in 28
industries is just 16%
Top performers out there have an NPS
of 75-80%
Harley Davidson 81%
Amazon 73%
Apple 66%
NPS Driving advocacy in the
enterprise

25

On to Loyalty and Advocacy

Know what matters to your
customers
Know how you stack up on these
measures
Do something to fix them
Drivers of satisfaction

Perceived value

Service level satisfaction

Competitiveness of fees

Possible measures How well you listen

Product level satisfaction

Importance vs satisfaction

The closeness of your

relationship

Likelihood to recommend

Likelihood to transact

NPS Driving advocacy in the

Likelihood to extend
enterprise

the

26

Relationship strength

Sources of Bias
Fear of Retribution
Bribery
Grade Inflation

Fighting Bias
Use e-mail whenever feasible
Time feedback requests unpredictably if employees have an
incentive to manipulate responses
Make team or individual employee scores transparent in
order to enable community pricing
Use a third party to collect a feedback so that customers
can be completely candid and so that the promise of
confidentiality is more credible.
Educate employees and customers about the goals and
ethical principles of your feedback process.
Craft a simple and convenient process that makes it easy
for customers to participate.